Inequality a problem in itself?

A serious moral question arose during today’s seminar: Is inequality in wealth a problem, in and of itself?

Specifically, if there are two individuals or states where one is poor and one is rich, and both are getting wealthier but the richer state is getting even richer faster, is this a problem?

Within the question, there are two sub-cases. In the first of those, the growth in the rich state is completely separate from that of the poor state. Imagine they are completely disconnected and have no engagement with one another. Does the fact that the GDP of the rich state has risen by 50% and that of the poor state by only 5% matter, in a moral sense?

The other case is that the 50% growth in the rich state is somehow causally tied to the 5% growth in the poor state. Specifically, the latter would be higher if the former was lower. Now, that is entirely possible, but this is a different moral category. In the first case, one would have to appeal to general moral cosmopolitanism. In the latter case, we can refer to a moral tradition akin to that of the law of tort: you have harmed me, and you owe me something. This does not speak to the fundamentally immorality of inequality.

All contributions to this discussion are encouraged.

[Update: 7:00pm] To be clear, I do not dispute the fact that it is virtuous for the rich to help the poor. I am a firm believer in the moral value of philanthropy. The question above is about obligation, not charity.

Rawls. If the best possible arrangement for the weaker state is the one of inequality, then the inequality is justified. However, there is no standard against which to justify anything other than the two levels of wealth (one for each respective state). Thus, the dilemma about whether inequality is a problem in itself is truly a problem about whether standards have any meaning in themselves. This is certainly the case for starvation, but not the case for size of TV screens, speed of cars, etc… these standards are arbitrary because they are based on preference and desire. Therefore, inequality is a moral problem as soon as the living conditions surpass by a sufficient margin abject poverty.

Many people (like Rawls) think this is a totally different question if it’s about two individuals in the same state or two different states.

I think your update also ignores the fact one may think inequality bad without thinking we have an obligation to redistribute.

Personally I wouldn’t be too worried by inequality in sub-case one (though I might be worried about poverty).

In the second, I think I’d have to know more about the connection – e.g. is it exploitative? It may be possible that the people in the poorer country are choosing a pleasant, environmental way of life and importing the few industrially-produced goods they need, rather than developing economically themselves. If they weren’t able to do this, it may well be that their economic growth would be higher, but they’d be worse off all-considered. In such a scenario, it doesn’t seem objectionable.

I think it really depends how the wealth is derrived. If the richer country and/or its citizens rely somehow on the poorer one, be it for labour, inexpensive goods, resources, etc., then they certainly do have an obligation to the poorer country that they are exploiting. This obligation would also apply to poorer and richr citizens within a nation. I suppose your scenario 1 wouldn’t fit here, but I can’t think of a situation in the actual world that works like that, thus for all practical purposes, I think there is a moral obligation.

I didn’t mean to bring up Rawls as a person, just the veil of ignorance argument, as it quite obviously could be made to apply to inter state situations. Unless you believe in the metaphysical significance of borders, which is to involve yourself in the discourse of romantic nationalism which is not good for much other than genocide in my opinion, you can’t differentiate between moral obligations within a state and intra-state obligations and remain consistent. Rights won in democratic revolutions are inherent and thus must be accorded to all humans if we are not to be hypocrits about our own freedom.

I think the fact that Rawls does not see his veil of ignorance argument as internationally extensible is rather important. The point of that thought experiment is to legitimate governmental authority, through the application of moral principles derived under conditions of fairness. Where no joint polity exists, this dynamic gets complicated a great deal.

I don’t believe in the “metaphysical significance of borders” but I do believe that they have huge significance in the world we occupy. Our approaches to international justice must take that into account.

I’m not sure that interrogating morality is the way to analyse inequality. Rawls is ultimately a fantasist because he refuses to engage with the real world: he will only work with deracinated individuals who are stripped of their actually existing identities, interests, and beliefs. In the absence of these things, he says, people would agree to more egalitarian distribution. Sure, but that’s like saying if money grew on trees no one would be poor. If no one had identities, interests and beliefs, inequality wouldn’t be an issue. The reason we have inequality is that prevailing political and economic order enacts and legitimises a system of distribution that allocates resources unequally.

Distribution is not primarily a moral question but a political one. The key question is not whether inequality is immoral but whether it is politically justifiable given that wealth is always created socially and via the extraction and acquisition of surplus. So to ask in a situation where the top 10% see a 50% rise in income while the bottom 10% see a 5% rise is that moral or immoral is to miss the point. The fact is that the benefits of economic activity have always been skewed unevenly as a result of political choices – the 50% vs 5% data is a simple reflection of that. The question is, what should we do about it politically.

Incidentally I heard your remarks caused quite a stir. They also disproved an argument someone made at Nuffield over lunch the other day that no one is willing to defend inequality explicitly.

What you really want is the levelling down objection. It’s pleasing to see though that despite Lee’s little misrepresentations – what matters is whether it’s politically, not morally, justifiable: exactly how are you going to justify something with appeal to some sort of evaluative idea, anyway? – IR people do actually get political theory.

To some extent, I think people are misunderstanding the Rawlsian project. I see it primarily as an attempt to rescue consent based theories of political legitimacy from David Hume’s extremely forceful critique. Taking just the difference principle as the defining feature of Rawlsianism ignored the lexical priority of the equality principle. You could certainly have a discussion about inequality that operated entirely above the level of the difference principle in Rawls’ moral hierarchy.

Incidentally I heard your remarks caused quite a stir. They also disproved an argument someone made at Nuffield over lunch the other day that no one is willing to defend inequality explicitly.

I am glad, but somewhat surprised, to hear this. Arrighi et al assume that ‘development’ means ‘convergence with the rich world.’ The possibility that they are developing as well seems to be absent from the fraction of his analysis we read.

If you want to read a good critique of Rawls, Habermas, and other fantasy world liberals, see Stephen Hopgood’s ‘Reading the Small Print in Global Civil Society: The Inexorable Hegemony of the Liberal Self’, Millennium: Journal of International Studies, 29:1 (2000), pp. 1-25.

“IT’S the rich wot gets the pleasure, it’s the poor wot gets the blame.” The soldiers who sang that ditty in the first world war may have been reflecting on the contrast between their lice-ridden, shell-shocked existence and the creature comforts available to aristocrats back home.

There was an enormous disparity between the income and wealth of the top and bottom classes of society in the early days of the 20th century, as there is today, another era of boisterous global trade. The issue of inequality prompted Ben Bernanke, the Federal Reserve chairman, to make a speech on February 6th calling for improvements in education and training to help displaced workers.

Ajay Kapur and Niall Macleod, two Citigroup strategists, have invented the term “plutonomy” to describe an economy where the spending power of the elite holds sway. They argue that American savings data are distorted by the top 20% of the population. Whereas many Americans are reasonably thrifty, the wealthiest group spends more than it earns.

The rich need not save because financial markets are doing their savings for them. Rising equity and house prices drove up the net-worth-to-income ratio of the wealthiest tenth of Americans from 5.8 in 1989 to 8.4 in 2004. That gives them a licence to spend and makes them immune to petty worries like higher petrol prices.

Furthermore, Messrs Kapur and Macleod say the rise of wealthy elites in Russia and Asia may help explain why America finds it so easy to fund its current-account deficit. Emerging-market plutocrats are nervous about keeping their fortunes at home, lest the political winds change. So they seek to move as much of it as possible to richer countries. This, together with reserve management by the central banks in Asia and oil-exporting countries, provides a steady source of demand for American assets.

But what has caused this great dispersion of wealth? It is not happening in all countries. The gap has been widening in America, Britain and Canada but has barely budged in France, Japan or the Netherlands. The two strategists cite numerous factors, including rising executive pay and technological innovation, which have rewarded high-skilled individuals. Globalisation, which seems to have lowered the relative cost of unskilled labour and boosted the return to capital, has also played its part.

Actually, if one looks at a broad sweep of history, it is the relatively egalitarian 20th century that seems the exception. Mass democracy is only 100 years old and it ushered in both the welfare state and redistributive taxation. The rise of democracy, in turn, was driven by the economic power of workers, especially those gathered in large groups to work in mining, manufacturing and transport. As those industries have ebbed, so have the forces of economic equality.

But although the workers have lost some of their economic power, they have not lost their votes and may yet use them to redress the balance. Messrs Kapur and Macleod suggest there may even be a link between the growth of profits as a proportion of national income and the rising popularity of far-right European parties such as the National Front in France.

If there were such a backlash, it could be a threat not just to globalisation, but to democracy itself. Opinion polls and low voter turnout at elections may indicate widespread public disillusionment with politicians. There is also scepticism about the fairness of the political process, given the role companies play in financing political parties. And this is during strong economic growth: imagine what a recession could do.

The prospects for a tax grab on company earnings are limited, given the ability of corporations to move quickly across national boundaries. But even in countries (like America) without extremist parties on the left or the right, politicians will be tempted to deflect the voters’ wrath away from their corporate paymasters and towards an easier target—“foreigners” of all types. Hence the potential appeal of protectionist and anti-immigrant policies.

In time, this could undermine globalisation and reverse the relative advantages of the rich (and the higher trend in profits). Although many might welcome a more egalitarian world, the risk is that protectionism would usher in a deep global recession, as it did in the 1930s.

It is easy to assume, with globalisation, that a rising tide lifts all boats. And most people do gain, even if the improvement in their way of life can sometimes be hard to discern. But workers whose factories are shut are unlikely to see it that way. For them, it must seem these days that a rising tide lifts only all yachts.

Richard Wilkinson and Kate Pickett, because they conceive of each social ill in isolation, rather than treating their shared root cause. Moreover, they misidentify that cause: it is not poverty as such, but inequality.

It is a sweeping claim, yet the evidence, here painstakingly marshalled, is hard to dispute. Within the rich world, where destitution is rare, countries where incomes are more evenly distributed have longer-lived citizens and lower rates of obesity, delinquency, depression and teenage pregnancy than richer countries where wealth is more concentrated. Studies of British civil servants find that senior ones enjoy better health than their immediate subordinates, who in turn do better than those further down the ladder.

Normally, when one reads a proudly left-wing magazine like The American Prospect one expects to read vocal denunciations of inequality. So there’s a certain man-bites-dog quality to a recent article by Dalton Conley, dean of social sciences at NYU and card-carrying liberal. He argues that those on the left should stop worrying so much about inequality per se–its costs are overstated, as well as the benefits of greater equality. Instead, he argues, liberals should concentrate more on helping the poor and less on beating up on the rich.

At the risk of getting Conley’s membership in the liberal club revoked, I think he is right. I have never understood how I am worse off if the top 1% of households increase their share of national wealth or income as long as the absolute level of wealth and income of the other 99% is unchanged. It may be aesthetically displeasing, but it doesn’t impose any actual costs on anyone as long as the pie is not fixed. Of course, were that the case it would be different. Gains by the wealthy would necessarily come at the expense of everyone else.

Implicitly, liberals tend to believe the pie is fixed. But, generally speaking, it isn’t. A rising tide does tend to lift all boats even if those at the top get lifted a lot more. But Conley is also right to ridicule the view, common among many conservatives, that enriching the wealthy somehow automatically benefits the poor. That’s obviously nonsense. But neither does it follow that there is no limit to how much we can soak the rich without average people suffering some of the consequences. We really don’t want the rich spending all their time figuring out how to hide their wealth from the tax man or engaging in conspicuous consumption; we’d rather that they invested their wealth in businesses that will increase their wealth but also create jobs and income for the rest of us, too.

“This was the era in which the accumulated wealth of America’s richest families—the Rockefellers, the Vanderbilts, the Carnegies—helped prompt creation of the modern income tax, lest disparities in wealth turn the United States into a European-style aristocracy. The socialist movement was at its historic peak, a wave of anarchist bombings was terrorizing the nation’s industrialists, and President Woodrow Wilson’s attorney general, Alexander Palmer, would soon stage brutal raids on radicals of every stripe. In American history, there has never been a time when class warfare seemed more imminent.

Income inequality in the United States has not worsened steadily since 1915. It dropped a bit in the late teens, then started climbing again in the 1920s, reaching its peak just before the 1929 crash. The trend then reversed itself. Incomes started to become more equal in the 1930s and then became dramatically more equal in the 1940s. Income distribution remained roughly stable through the postwar economic boom of the 1950s and 1960s. Economic historians Claudia Goldin and Robert Margo have termed this midcentury era the “Great Compression.” The deep nostalgia for that period felt by the World War II generation—the era of Life magazine and the bowling league—reflects something more than mere sentimentality. Assuming you were white, not of draft age, and Christian, there probably was no better time to belong to America’s middle class.”

“* The American aristocracy is less different from you and me than it was in Fitzgerald’s day. “Before World War II,” they wrote, “the richest Americans were overwhelmingly rentiers deriving most of their income from wealth holdings (mainly in the form of dividends).” But today, they found, the top of the heap are overwhelmingly job-holders deriving most of their income from their wages. Did it become posh to have a job ? Not exactly. Having a job—the right job, anyway—became the way to get posh. That’s encouraging in one sense: To roll in the dough you now have to work for a living. But it’s discouraging in another sense: You can’t blame enormous income disparities on non-working coupon-clippers who exist outside the wage structure (and reality as most of us understand it). The wage structure itself is grossly misshapen.

* The share of national income going to the top 1 percent (the Rich) more than doubled during the Great Divergence and now stands at about 21 percent. The chart showing this found its way into President Obama’s first budget (see Figure 9), prompting Wall Street Journal columnist Daniel Henninger to call it “the most politically potent squiggle along an axis since Arthur Laffer drew his famous curve on a napkin in the mid-1970s.” But where Laffer’s squiggle was an argument to lower taxes, Piketty and Saez’s (the conservative Henninger noted with some dismay) was to raise them on the Rich.

* The share of national income going to the top 0.1 percent (the Stinking Rich) increased nearly fourfold during the Great Divergence. “The [inequality] phenomenon is more extreme the further you go up in the distribution,” Saez told me, and it’s “very strong once you pass that threshold of the top 1 percent.” Canada’s and the United Kingdom’s Stinking Rich followed a similar (though less pronounced) trend, but Japan and France did not; in the latter two countries, the Stinking Rich received about the same proportion of national income (about 2 percent) as the Stinking Rich did in all five countries prior to the Great Divergence. In a 2009 paper, Saez and Piketty surveyed several other industrialized nations (Table 5); in none of them did the Stinking Rich come anywhere near the 7.7 percent share of national income found in the United States.”

“Who are the Stinking Rich? Their average annual income is about $7 million. Most of them likely work in finance, a sector of the U.S. economy that saw its share of corporate profits rise from less than 10 percent in 1979 to more than 40 percent in the aughts. The rest of the Stinking Rich are in good measure likely divided between the corporate and entertainment worlds. Among the latter two, the Rich and especially the Stinking Rich are often beneficiaries of the Winner Take All phenomenon (Kaus calls it the “Hollywood Effect”), in which those deemed best in their field are, thanks to improved technology, able to disseminate praise for their work across a broader geographic area and sell their services to many more people than they ever could in the past. Where once an accomplished chef presided over a single successful restaurant, today he can aspire to become a celebrity chef on the Food Network, which in turn can help him sell a cookbook and open additional restaurants around the country.

This logic doesn’t apply to Wall Street, whose incentive structure, as documented in Michael Lewis’ books Liar’s Poker and The Big Short, simply went berserk starting in the 1980s with the development of ever-more-complex financial instruments increasingly divorced from traditional notions of value. An explanation of how finance came to take over the U.S. economy would require its own Slate series. But Saez, Hacker, and Pierson argue plausibly that the industry’s deregulation (and the protection it received from a few well-placed Democrats like Sen. Chuck Schumer of New York) played a large role.”

We have now reviewed all possible causes of the Great Divergence—all, at least, that have thus far attracted most experts’ attention. What are their relative contributions? Here is a back-of-the-envelope calculation, an admittedly crude composite of my discussions with and reading of the various economists and political scientists cited thus far:

* Race and gender are responsible for none of it, and single parenthood is responsible for virtually none of it.
* Immigration is responsible for 5 percent.
* The imagined uniqueness of computers as a transformative technology is responsible for none of it.
* Tax policy is responsible for 5 percent.
* The decline of labor is responsible for 20 percent.
* Trade is responsible for 10 percent.
* Wall Street and corporate boards’ pampering of the Stinking Rich is responsible for 30 percent.
* Various failures in our education system are responsible for 30 percent.

Wasn’t reversing the decades-long trend toward income inequality supposed to be the big theme of the Obama administration? The new president sounded it strongly in his inaugural address, stating that “a nation cannot prosper long when it favors only the prosperous.” He followed up with a 2010 budget proposal that sought, in the words of the New York Times’ David Leonhardt, “to reverse the rapid increase in economic inequality over the last 30 years.” Obama has raised the issue at major occasions since, including his first State of the Union address in 2010, when he noted, “We cannot afford another so-called economic ‘expansion’ like the one from last decade … where the income of the average American household declined.”

But if Obama has declared war on inequality, inequality seems to be winning. In the deal he just cut with congressional Republicans, the president not only agreed to extend the Bush tax cuts for the highest earners but also to eliminate the estate tax for all but the microscopic percentage of people passing down more than $5 million—causing inheritance tax proponent Ray Madoff to declare the battle lost for good.

And despite the role skewed financial rewards played in cratering the global economy, the Obama administration’s policy response has failed to address outsized Wall Street and CEO compensation in any meaningful way. Bonus season is upon us, and with the big banks now liberated from their TARP obligations, the general attitude seems to be, “What financial crisis?” Class war, prosecuted from above, is depicted as a threat from below. A few months ago, billionaire private equity manager Steve Schwarzman had the gall to compare the Obama administration’s attempt to tax “carried interest” at the same rate as other forms of income to “when Hitler invaded Poland in 1939.”

APART from being famous and influential, Hu Jintao, David Cameron, Warren Buffett and Dominique Strauss-Kahn do not obviously have a lot in common. So it tells you something about the breadth of global concerns about inequality that China’s president, Britain’s prime minister, America’s second-richest man and the head of the International Monetary Fund have all worried, loudly and publicly, about the dangers of a rising gap between the rich and the rest.

Mr Hu puts the reduction of income disparities, particularly between China’s urban elites and its rural poor, at the centre of his pledge to create a “harmonious society”. Mr Cameron has said that more unequal societies do worse “according to almost every quality-of-life indicator”. Mr Buffett has become a crusader for a higher inheritance tax, arguing that America risks an entrenched plutocracy without it. And Mr Strauss-Kahn argues for a new global growth model, claiming that gaping income gaps threaten social and economic stability. Many others seem to share their concerns. A new survey by the World Economic Forum, whose annual gathering of bigwigs in Davos begins on January 26th, says its members see widening economic disparities as one of the two main global risks over the next decade (alongside failings in global governance).

—

A special report on global leadersThe few
In the information age, brainy people are rewarded with wealth and influence, says Robert Guest. What does this mean for everyone else?

TOMMY GALLAGHER was working across the street when the planes hit the Twin Towers. “As we evacuated, we could see people jumping out of windows,” he recalls. Then the first tower collapsed. Everyone in the street started running. A huge cloud of dust enveloped them. Mr Gallagher could not see or breathe. He thought he was going to die.

Soon after he escaped, Mr Gallagher was told to put his bank’s business back together at an office in uptown Manhattan. Plugging the computers in again was easy enough, but the people in the office could not simply be re-booted. After a month Mr Gallagher snapped. “A guy gave me shit. I threatened to beat him up. They fired me,” he says.

He was 57 at the time. “On Wall Street, you’re an old man at 50,” he shrugs. He could not find another job. Financially that did not matter much: he was a wealthy man. But emotionally he was “a basket case”. He was embarrassed about having been fired, ashamed of his behaviour and “absolutely alone”. He started worrying that the doormen at his fancy apartment must be thinking: “That guy’s a loser.”

THERE was not a single year between 1952 and 1986 in which the richest 1% of American households earned more than a tenth of national income. Yet after rising steadily since the mid-1980s, reckon Thomas Piketty and Emmanuel Saez, two economists, in 2007 the income share of the richest percentile reached a staggering 18.3%. The last time America was such an unequal place was in 1929, when the equivalent figure was 18.4%. The similarities in the evolution of income inequality in the years leading up to the Depression and the global economic crisis make for one of the most striking parallels between the two episodes. Some talk of a repeat of the Roaring Twenties, when Jay Gatsby threw lavish parties at his Long Island mansion—although this time round, the dubious profits have been made from real-life finance, not fictitious bootlegging.

Economists have been thinking hard about the causes, extent and consequences of the recent rise in inequality. At the annual meeting of the American Economic Association (AEA) in Denver this month, there was a spirited debate about one of the most controversial hypotheses so far. That has been advanced by Raghuram Rajan, of the University of Chicago Booth School of Business, in a recent book, “Fault Lines”. He argues that increased inequality—more precisely, the political response to it—helped to cause the financial crisis.

Mr Rajan reckons that technological progress increased the relative demand for skilled workers. This led to a widening gap in wages between them and the rest of the workforce, because the supply of the skilled did not keep pace with demand. This reasoning is widely accepted. But Mr Rajan goes further than most when he argues that this growing gap lay behind the credit boom whose souring precipitated the financial crisis.

FOR the head of the IMF to quote Adam Smith may seem unremarkable. But here is Dominique Strauss-Kahn citing the great man in November 2010: “The disposition to admire, and almost to worship, the rich and the powerful and…neglect persons of poor and mean condition…is the great and most universal cause of the corruption of our moral sentiments.”

Mr Strauss-Kahn then bemoaned “a large and growing chasm between rich and poor—especially within countries”. He argued that inequitable distribution of wealth could “wear down the social fabric”. He added: “More unequal countries have worse social indicators, a poorer human-development record, and higher degrees of economic insecurity and anxiety.”

That marks a huge shift. Just before the financial crisis America’s Congress was gaily cutting taxes for the highest earners, and Tony Blair, Britain’s prime minister, said he did not care how much soccer players earned so long as he could reduce child poverty. So why has fear of inequality stormed back into fashion? Does it matter in some new way? Does it have previously unknown effects?

SIR – You were incorrect in asserting that there is a weak link between inequality and the variety of problems we attribute to it in our book, “The Spirit Level” (“Unbottled Gini”, January 22nd). The relationships between national levels of income inequality and mental illness, children’s well-being, low social mobility, teenage births, prison rates and trust are all extraordinarily close, with correlations of between 0.7 and 0.9.

Although the connections we show of inequality to life expectancy, infant mortality and homicide are slightly weaker (though still statistically significant with correlations of between 0.4 to 0.6), there are an additional 200 independent analyses that chart the link between health and inequality and another 50 between violence and inequality. Your point about homicide and gun ownership was also wide of the mark: control statistically for gun ownership and the relationship between homicide and inequality becomes slightly stronger. The issue of outliers is a red herring. Raised as a criticism of some of our studies, it is irrelevant to these other analyses.

The politically motivated attacks on our work have been rebutted, not only in a new chapter of ours, but also by others.

Richard Wilkinson
Emeritus professor of social epidemiology
University of Nottingham medical school
Kate Pickett
Professor of epidemiology
University of York

SIR – Your leader on inequality was a total cop-out (“The rich and the rest”, January 22nd). Is that because you don’t want to antagonise a large part of your wealthy readership? The rise in inequality in America and Europe is clearly the result of the ruinous banking system. Huge amounts of wealth have been sucked out of the economy and into the hands of a few.

Graham Simon
London

SIR – In an article on California’s budget woes you stated that the advantage of proposed spending cuts is the “symmetry of pain and incentives” (“Modocians and Alamedans”, January 15th). Another way of putting this is to say that government is unable to evaluate the weight of competing claims on the purse strings and merely resorts to splitting the difference under the guise of fairness. This is no way to govern.

I don’t have a reference for you right now, but Peterson claims that inequality, rather than poverty, is highly correlated with violence both in the contemporary United States, and as a general rule in cultures throughout history. The basic explanation is this: in cultures with a steep dominance curve those on the bottom end don’t have enough to lose, and thus at a higher rate become pathological and murderous. This is his explanation for why most successful cultures have some form of marriage, or “pair-bonding” – because without restricting coupling to 2, dominant males get access to many female mates, and less dominant males get none (reverse for non-patriarchal societies). Lack of access to a mate or economic stability means one has less to lose by joining an organization whose good comes at the expense of societal order.

It is possible that even inequality that arises for ethical reasons (like some people preferring to spend all their time working, while others prefer more leisure) could still be problematic from a utilitarian perspective, if it creates problematic circumstances within society.

“Great inequality is the scourge of modern societies. We provide the evidence on each of eleven different health and social problems: physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life, violence, teenage births, and child well-being. For all eleven of these health and social problems, outcomes are very substantially worse in more unequal societies.

We have checked the relationships wherever possible in two independent test beds: internationally among the rich countries, and then again among the 50 states of the USA. In almost every case we find the same tendency for outcomes to be much worse in more unequal societies in both settings.

We also present evidence on four other important issues. One is how achieving greater equality within the rich countries may contribute to tackling the inequalities between rich and poor countries. Another is a discussion of both the compatibility and relative merits of greater equality and economic growth as sources of improvements in the quality of life among rich countries. There is a page discussing how greater equality may contribute to policies designed to tackle global warming, and lastly, a page (The Remedies) pointing out that there are many different ways of increasing equality in our societies.

The data we use comes from the most respected international sources including The World Bank, World Health Organisation, United Nations, UNICEF, and US Census Bureau. Much of this work has already been published in peer reviewed academic journals, and some of the relationships have been tested many times by different research groups using data for different societies.”

Why is bashing the rich such an unpopular form of populism in America? The normal answer falls back on culture. Bill Galston of the Brookings Institution notes that Americans are repelled by the notion of inequality in worth or status. That men are created equal is, after all, “self-evident”. They are, however, far less perturbed by unequal wealth, a form of inequality that is the inevitable product of the free-market system in which most still profess an abiding faith. According to Tom Smith, director of the Centre for the Study of Politics and Society at the University of Chicago, surveys still show Americans to be more sympathetic than Europeans to the idea that unequal pay encourages people to work hard, for example, and less sympathetic to the idea that governments should try to smooth such inequalities out.

The way patronage and promotion work within the corporate world may count against women. Nearly all the executives who rise to the top have had a powerful backer, according to Sylvia Ann Hewlett, the author of “The Sponsor Effect”, a report for the Harvard Business Review. Yet women often fail to cultivate what Ms Hewlett calls “relationship capital”. They hesitate to call in favours for fear of seeming pushy. And many are afraid of the gossip that a close relationship with a senior male colleague might provoke.

So much of the talk surrounding the jobs crisis focuses on unemployment, but a huge portion of those who do have jobs are barely clinging to a decent lifestyle. In 2010, one in five American adults worked for poverty-level wages, 4.4 million of whom earned wages at or below the federal minimum.

The infographic above, from the National Low Income Housing Coalition, makes painfully clear just how hard it is to make ends meet on these wages. Want a modest two-bedroom apartment in New York state for the standard 30 percent of your income? You’re going to have to toil at a minimum-wage job for 136 hours a week. In California? One hundred thirty hours. How about in Texas, where one in 10 hourly workers make the minimum or less? Eighty-eight hours. Don’t forget, there are only 168 hours in a week. That doesn’t leave a whole lot of time for sleeping and eating.

This is evidence that the Iron Law of Meritocracy is, in fact, exerting itself on our social order. And we might ask what a society that has been corrupted entirely by the Iron Law of Meritocracy would look like. It would be a society with extremely high and rising inequality yet little circulation of elites. A society in which the pillar institutions were populated and presided over by a group of hyper-educated, ambitious overachievers who enjoyed tremendous monetary rewards as well as unparalleled political power and prestige, and yet who managed to insulate themselves from sanction, competition and accountability; a group of people who could more or less rest assured that now that they have achieved their status, now that they have scaled to the top of the pyramid, they, their peers and their progeny will stay there.

Such a ruling class would have all the competitive ferocity inculcated by the ceaseless jockeying within the institutions that produce meritocratic elites, but face no actual sanctions for failing at their duties or succumbing to the temptations of corruption. It would reflexively protect its worst members; it would operate with a wide gulf between performance and reward; and it would be shot through with corruption, rule-breaking and self-dealing, as those on top pursued the outsized rewards promised for superstars. In the same way the bailouts combined the worst aspects of capitalism and socialism, such a social order would fuse the worst aspects of meritocracy and bureaucracy.

It would, in other words, look a lot like the American elite in the first years of the twenty-first century.

There can never be enough super rich Americans like me to power a great economy. I earn 1000 times the median wage, but I do not buy 1000 times as much stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, we go out to eat with friends and family only occasionally. I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or cars or enjoy any meals out. Or to make up for the decreasing consumption of the vast majority of American families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages. This is why the fast increasing inequality in our society is killing our economy. When most of the money in the economy ends up in just a few hands, it strangles consumption and creates a death spiral of falling demand.

I agree with so much in Martha Nussbaum’s well-argued and moving piece, but I would like to enter one caveat. Nussbaum sometimes seems to be proposing cosmopolitan identity as an alternative to patriotism. If so, then I think this is a mistake. And that is because we cannot do without patriotism in the modern world.

This necessity can be seen from two angles. The most important is this: the societies that we are striving to create — free, democratic, willing to some degree to share equally — require strong identification on the part of their citizens. It has always been noted in the civic humanist tradition that free societies, relying as they must on the spontaneous supportive action of their members, need that strong sense of allegiance that Montesquieu called “vertu.” This is if anything even truer of modern representative democracies, even though they integrate “the liberty of the moderns” with the values of political liberty. Indeed, the requirement is stronger just because they are also “liberal” societies, which cherish negative liberty and individual rights. A citizen democracy can only work if most of its members are convinced that their political society is a common venture of considerable moment, and believe it to be of vital importance that they participate in the ways they must to keep it functioning as a democracy.

This means not only a commitment to the common project, but also a special sense of bonding among people working together in this project. This is perhaps the point at which most contemporary democracies threaten to fall apart. A citizen democracy is highly vulnerable to the alienation which arises from deep inequalities, and the sense of neglect and indifference that easily arises among abandoned minorities. That is why democratic societies cannot be too inegalitarian. But this means that they must be capable of adopting policies with redistributive effect (and to some extent also with redistributive intent). And such policies require a high degree of mutual commitment. If an outsider can be permitted to comment, the widespread opposition to the extremely modest proposal for a health plan in the United States doesn’t seem to indicate that contemporary Americans suffer from too great a mutual commitment.

Hacker, Jacob S. and Paul Pierson. 2010. “Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States.” Politics and Society 38, 2: 152-204

“This picture turns out to be stark: The bottom of the distribution went nowhere, the middle saw a modest gain, and the top ran away with the grand prize. While the overall economy expanded substantially between 1979 and 2005, the average incomes of the poorest fifth of households increased by only around 6 percent and the middle quintile of households saw their incomes rise just 21 percent, even when inflation and govern- ment taxes and benefits are taken into account. Meanwhile, the average after-tax incomes of the richest 1 percent of households rose nearly 230 percent. And, again, the gains enjoyed by the top 1 percent pale in comparison to those received by the top hundredth of 1 percent. Between 1979 and 2005, the CBO numbers show, the average after-tax income of households in the top 0.01 percent increased from just over $4 million to nearly $24.3 million—an almost sextupling in a little more than a quarter century.”

An ongoing study of income distribution found that the richest 1% in America took 19% of national income last year, their biggest share since 1928. The top 10% of earners held a record 48.2%. During the recovery between 2009 and 2012 real family incomes rose by an average of 4.6%, though this was skewed by a 31.4% increase for the top 1%. For the other 99% incomes rose by just 0.4%. See article

COULD America survive the end of the American Dream? The idea is unthinkable, say political leaders of right and left. Yet it is predicted in “Average is Over”, a bracing new book by Tyler Cowen, an economist. Mr Cowen is no stranger to controversy. In 2011 he galvanised Washington with “The Great Stagnation”, in which he argued that America has used up the low-hanging fruit of free land, abundant labour and new technologies. His new book suggests that the disruptive effects of automation and ever-cheaper computer power have only just begun to be felt.

…

This may sound a bit grim, but it reflects real-world trends: 60% of employers already check the credit ratings of job candidates; young male unemployment is high and migrants have been flooding to low-tax, low-service Texas for years.

…

Politicians are skittish about admitting this. Barack Obama calls America’s wealth gap “our great unfinished business”, describing a crisis of inequality decades in the making. Think of technology, he tells audiences, and how it has thinned the ranks of travel agents, bank clerks and other middle-class gateway jobs. At the same time, global competition has reduced workers’ bargaining power. People have “lost trust in the capacity of government to help them”, he sorrows. But then Mr Obama implies that political villainy is the real culprit. He accuses entrenched interests of working for years to spread a “great untruth”: that government intervention is either harmful or a plot to grab tax dollars from the squeezed middle and shower them on the undeserving poor. Politics risks becoming a “zero-sum game where a few do very well while struggling families of every race fight over a shrinking economic pie.”

Most likely, the answer lies in the nature of America’s inequality, whose main characteristic is the soaring share of overall income going to the top 1% (from 10% in 1980 to 22% in 2012). The correlation between vast wealth accruing to a tiny elite and the ability of people to move between the rest of the rungs of the income ladder may be small—at least for now.

…

Third, although social mobility has not changed much over time, it varies widely from place to place. In a second paper, the economists crunch their tax statistics by region. They find that the probability of a child born into the poorest fifth of the population in San Jose, California making it to the top is 12.9%, not much lower than in Denmark. In Charlotte, North Carolina it is 4.4%, far lower than anywhere else in the rich world.

“Inequality is not a problem per se. I think inequality up to a point can actually be useful for innovation and growth. The problem is – it’s a question of degree. When inequality gets too extreme then it becomes useless for growth and it can even become bad because it tends to lead to high perpetuation of inequality over time and low mobility.”

“One of the regrettable … effects of extreme inequality is its tendency to weaken the capacity for impartial judgement. It pads the lives of its beneficiaries with a soft down of consideration … and secures that, if they fall, they fall on cushions. It disposes them, on the one hand, to take for granted themselves and their own advantages, as though there were nothing in the latter which could possibly need explanation, and, on the other hand, to be critical of claims to similar advantages advanced by their neighbours who do not yet possess them. It causes them, in short, to apply different standards to different sections of the community, as if it were uncertain whether all of them are human in the same sense as themselves.”

White, Stuart. The civic minimum : an essay on the rights and obligations of economic citizenship. Oxford University Press, 2003. p. 181

In other words, it is not obvious that ceos in America and Britain are raking it in because they are uniquely skilled. Moreover, their stock-option paydays have been driven in part by declines in interest rates, designed to boost the whole economy. Bosses have won the monetary lottery.

In a new book*, Deborah Hargreaves, a former journalist (and ex-colleague of Bartleby), describes the experience in Britain. Pay has outstripped improvements in corporate performance. Between 2000 and 2013, the pay of chief executives at ftse 350 companies in Britain rose by 350%, while pre-tax profits rose by 195% and revenues by 140%.